SAP consulting powerhouse realizes liquidity and retains future upside

Utegration and RLH Equity Partners agree to an investment to support growth and innovation

CEO Bin Yu founded Utegration, a provider of consulting, customization and implementation solutions to the utility industry, in 2008. Capitalizing on the utility industry’s demand for digital data integration, the firm quickly carved a valuable niche, earning recognition as SAP’s 2015 Utility Industry Partner of the Year. Not surprisingly, many suitors came calling, even early on. One such unsolicited offer to purchase the business got their attention, prompting them to reach out for the advice of GulfStar Group Managing Directors, Colt Luedde and Roshan Gummattira.

“Getting an unsolicited offer from a prestigious, global buyer out of the blue can be a tempting prospect for many middle market business owners. Our job is to help these owners thoroughly evaluate the offer objectively,” says Colt. “We help clients fully understand all elements and implications of the structure, the tax consequences, the probability of close and life after the deal with that particular buyer. Armed with this information, our clients can better determine if the offer is consistent with their goals and objectives.”

In the case of the unsolicited offer that Utegration received, Colt and Roshan provided extensive analysis and consultation with Bin and co-owners David Head, Eric Polnau, and Alan Tan. Ultimately after a great deal of careful consideration and under the advice of GulfStar, the owners of Utegration elected to decline this offer. Many elements influenced their decision. In particular, they knew that Utegration was poised for tremendous growth because of their deep domain expertise in the utility sector, SAP capabilities and high-caliber talent in the U.S. and India. They wanted to participate in their company’s future upside and preserve its culture, which had been so carefully crafted.

“As part of any transaction, the team was particularly interested in ensuring the future opportunity for their employees,” says Roshan, “and they were willing to make economic sacrifices towards that goal. We helped them understand the advantages a private equity partner might provide.”

So, it was Time to take Their Company to the Market. Or was it?

As part of the original deliberations about whether or not to proceed with the initial offer, GulfStar and Utegration had discussed the benefits of running a controlled, yet broad process, including both private equity and strategic buyers, not only to bring more competitive options to the table but also to find the best partner for the future. After declining the initial offer, the expected course of action might have been to immediately commence such an M&A process. However, in a defining moment for everyone involved, GulfStar advised Utegration to pause. Utegration’s business was accelerating and by simply waiting a few months, the value of the company would significantly increase.

Eric considers GulfStar trusted advisors. “I know that sounds cliché, but it really fits,” he says. “There were many times in the process when they could have just directed us to get a deal done and get paid, but that’s not the way they operate. Instead, they were right by our side, taking care of the details, sharing their network of support, helping us navigate all the decisions that needed to be made and documents that needed to be put in place. I don’t know how we would have done it otherwise.”

The brief intermission strategy paid off. GulfStar took Utegration to market in May of 2016 and closed on a majority recapitalization deal with RLH in early October. The transaction allows the owners to retain a portion of the business while partnering with a firm that respects their culture and provides the financial and organizational support to help Utegration achieve even greater success. And when that happens, they have the additional opportunity to profit a second time, if the company is resold in the future.